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China sales still struggling, Top Gear does NIO, More capital for XPeng - SAI Newsletter #43



The big news this week were the October auto sales numbers coming out of China. The sector, both ICEs and EVs, continues to struggle with both markets still having negative market growth. There are a couple different takes on it I highlight in articles below including how much longer I anticipate the market will struggle and who is likely to come out of it stronger.


Tesla also made some announcements this week, selecting Berlin to be the location of their Giga 4 factory while also getting approval from the Chinese got. to begin production in their Giga 3 factory in Shanghai. On another note, Nissan is in a world of hurt as they revise sales forecasts downward due to sales in China and the US declining. As with FCA and PSA, Nissan is also looking for a partner/buyer but they may be a bit more toxic with all that’s still going on with their former leadership and the drama that’s goes along with that.


VW went ALL OUT to launch its new corporate identity with an evening light show that included 900 drones, something that definitely has to be seen to be believed. I am thinking that that wasn’t cheap. Anyone who is skeptical about VW’s strategy for EVs needs to have a look, they’re going to go BIG on ad & marketing spend to make sure they sell a TON of EVs to China.


I realize this newsletter is EV company/sector heavy and will diversify more into other areas in the future as the news cycle permits.


On an administrative note, I am looking at traveling to CA & MI in early December should some meetings get sorted out and look forward to meeting up with anyone that’s around.



This weekly newsletter is a collection of articles I feel best reflect the happenings of the week or important trends that have effects on the automotive and mobility sectors here and in the US, I also provide a point of view that I hope educates and sparks debate about how I look at the issues. We will mostly divide our articles into these buckets: AI, Mobility/Ride-sharing/Ride-hailing/Bike-sharing, OEMs, EVStartups, Investments, and Other.


If you know of anyone who would like to sign up for this newsletter please have them visit: www.sinoautoinsights.com. Thanks for reading.


The Sino Auto Insights team

OEMs

A new retail experience for car buying. (www.electrek.co)

Volvo’s EV performance brand – Polestar, recently opened its first retail location in Oslo, Norway and it promises a unique customer experience for those interested in purchasing one of their vehicles.


Well, maybe not unique but let’s say evolved. Based on the article, I would describe the experience as very similar to a Tesla retail experience with some Scandinavian ‘less is more’ flair? The Tesla retail experience itself is a riff or evolution on the Apple retail store concept, the first company to truly create a new, user and product centered customer experience in a retail location IMHO.


Polestar plans to have 60 (China = 20, EU = 25, North America = 15) ‘Polestar Spaces’ globally by the end of 2020, the first in North America being located in Montreal set to open early 2020 so when one opens in BJ or SH, I’ll make sure to have a look.


There is a TON of room for innovation (read: improvement) as part of the car buying customer journey so I hope companies will take a step back and try some new things out. One of the first things I may do if I was responsible for sales at one of the OEMs / EV companies is have everyone stop using the words ‘dealer & dealership.’


For most people there are 2 purchases they make in their ENTIRE lives that are filled with emotion, the 1st being purchasing a home. The 2nd is purchasing a car, so when did it make sense for the car ‘dealers’ to make it such a stressful process? It should be filled with excitement, curiosity, a bit of drama and anticipation but NEVER stressful! It creates a poor reflection of the brand that customers do NOT forget.


There is a HUGE opportunity right now for OEMs / EV companies to create a new way of introducing their brand and products via the customer journey (online and offline) so that potential customers become net promoters, whether they purchase your vehicle or not.


I’ve spoken with a few companies about helping them better understand their customers in order to improve their customer journeys ultimately leading to a better customer engagement and reflection on the brand. I hope they decide it’s important enough to make that investment!

#Polestar #Volvo #PolestarSpace #retailevolution


ECONOMY

Another month of slowing NEV sales is making the goals set by the Chinese govt. even harder to reach. (www.cnn.com)

The Chinese govt. set a goal a while back of selling 7M NEVs (NEV = battery electric + plug-in hybrid electric + fuel cell vehicles) by 2025 and up until the last several months the market was tracking admirably towards achieving that goal. That’s until the trade war and a slow-down in economic growth led to uncertainty in the strength of the Chinese economy that has helped cause the China auto market to shrink a record 16 straight months and counting.


In addition, just this week the Chinese Association of Automotive Manufacturers (CAAM) said that year over year (YoY) October sales of NEVs fell a whopping 45%, making this the 4th consecutive month of shrinking sales. The CAAM are now speculating that overall NEV sales for 2019 will likely have negative growth. About 1.2M NEVs were sold in China in 2018 (the 2nd largest EV market by comparison, the US sold 361K in 2018).


I spoke with Michelle Toh from CNN about the current challenges in the market and whether or not the Chinese govt. would be dissuaded from their original goals for the sector. She captured alot of my views in the article but in summary, the govt’s long-term goals have not changed but a good % of sales, which perhaps the govt. originally thought could come from domestic players, will now need to come from foreign automakers if the sector is to come at all close to achieving its 7M unit sales target for 2025.


5 years is still a long way away and having lived and seen the pace of change here, I wouldn’t doubt that this goal CAN be still achieved although it may take the Chinese govt. putting its thumb on the scale, as it does from time to time, in order to still reach that sales goal. But as I’d mentioned in prior newsletters, EV sales won’t rebound until the broader ICE market does and so we wait.

#CNN #roadto7million #worldleaderinEVs #16andcounting


China considering another round of EV subsidy cuts. (www.caixinglobal.com)

Are another round of subsidy cuts in play over the next few months? It’s at least being considered by the Chinese govt. There have been cuts in subsidies for EV purchases twice already this year (in March and June) with the 2nd set of cuts triggering the NEV market to shrink the following month (in July) which has continued through to this month.


The Chinese govt knows it needs most of these 486 EV startups (as of March 2019) to close up shop or risk a bubble that could put the entire sector in jeopardy, significantly reducing the chances of reaching its 7M NEVs on the road by 2025 so the question isn’t whether it should or shouldn’t cut subsidies, it’s more a question of when.


Allowing some of these zombie EVStartups to exit the market should in theory help the more competitive EVStartups with finding capital as well. My guess is that they’ll wait until at least CQ2’20 before they make any further cuts since the market is still struggling and has not bottomed out yet.

#nomorewelfare #cuttingsubsidies #avoidingabubble #486istoomany


The auto market slowdown really says about some of the EVStartups. (www.ft.com)

Had a good chat with Daniel Shane from the Financial Times on why, aside from the cuts in subsidies and economic slowdown, the China EVStartups are struggling to find buyers for their products. One big reason for the struggles is because these companies haven’t had enough time to educate and establish their presence & positioning in the market and still need time to build trust with their potential consumers.


The good thing is that these companies still have a small window of time to introduce/reinforce their brands & products to a broader audience before a tidal wave of new products from some of the big box OEMs flood the market. Unless they are able to gain some significant share before that flood occurs, I see some of these companies continuing to struggle well after the economy & the automotive market begins to recover.

#FT #stillstruggling #theemperorsnewclothes #establishingyourbrand


GM’s China ONLY Menlo EV intro’d. (www.cnet.com)

In a move that illustrates the challenging position that the traditional OEMs are in launching vehicles into the two largest auto markets in the world, GM this week unveiled the Menlo EV that will be built AND sold in China ONLY, which tweaked some folks in the western media.


The analysts generally had decent things to say about the vehicle with one exception – Why won’t it be sold in the US? Their general argument is that the Chevy Bolt is a bit long in the tooth (which is true) and needs to be replaced so why not the Menlo?


There could be a myriad of answers for this so let me take a crack at documenting a couple important ones:


- Virtually all automakers have tried to design and manufacture a ‘global’ vehicle, one that will satisfy local tastes in China, ‘Murrica & the EU without much variation. It would sell millions of units, create these HUGE economies of scale and consequently make the car companies a boatload of cash.


They tried and failed that is. Differences in regional tastes and a lack of understanding of the dynamics of the local markets have been reasons for the lack of success but maybe the most important is that the vehicles haven’t been that great, I would argue that these vehicles were too plain (see Ford Mondeo, Volkswagen Jetta, Yugo). That’s what happens when you try to please millions of people in different parts of the world who have completely different tastes and live completely different lives.


- Germans and Americans have still not accepted that their ‘National Champion’ Auto OEMs (GM, Ford, VW, Daimler, BMW) have fully embraced China as THE MOST important market for their growth and survival and the best and/or newest products will sometimes not be sold to the domestic markets first.


This will be GM/SAIC’s first true entry into the EV market and I am predicting it will do quite well for them, but GM is not leaving that to chance since they will be introducing another 19 EV’s into the China and US markets by 2023!

#GM #SAIC #Menlo #ChinaONLY #EV #1of20


AV/EVSTARTUPS

Xiaopeng (XPeng) lives to fight another day. (www.reuters.com)

XPeng just confirmed what had been rumored for some time in Chinese media, that they were putting together a C-round of venture funding to the tune of USD $400M, valuing them at ~$4B, a 10% bump from their previous valuation of $3.57B. The headline investors for this round were Xiaomi and Xpeng’s founder, He Xiaopeng.


For Xiaomi, whose Founder/CEO Lei Jun invested individually in XPeng in an earlier round, this is likely a data play since they want to get inside the vehicle as an extension of their current strategy to provide a platform to sell services to buyers of its products. I wouldn’t be surprised if Xiaomi is working together with XPeng on an exclusive OS (like AliOS, Android Auto) for the XPeng vehicles. There must be some belief from Xiaomi’s corp dev / finance team that sees the potential in XPeng so it’s helping them get through this challenging environment with the expectation that XPeng will get the sales part figured out.


The $400M infusion should help XPeng invest more on marketing, open more retail locations, and most importantly launch their P7 sedan that was intro’d earlier this year in Guangzhou. A peculiar choice to launch a sedan as their 2nd product since the China market is shifting towards SUVs but if executed properly it could turn out to be a very shrewd decision, especially if the P7 is able to flip sales of folks looking at Tesla’s Model 3 & S.


The $400M raise is NOT bad considering the current market conditions, XPeng was able to increase their valuation, and the fact that they’ve only been able to sell ~13K units of the G3 SUV since delivery began in December of 2018. That’s less than 1.2K units / month on average. This challenging market has not really spared any EVStartup but that average number seems awfully low, especially when you compare it to some of the other China EVStartups out there.


My guess is that none of the EVStartups will survive in the long term though unless they are able to grow their sales to >10K units/month consistently and not one of them is sniffing close to that yet.

#XPeng #Xiaomi #roundC #400M #wearestillhere


Top Gear takes the NIO ES6 for a road trip …in China. (www.topgear.com)

Since many of my subscribers don’t actually live in Mainland China, they will NOT have the opportunity to see, touch, feel, drive or be driven in many of the vehicles from the brands we follow and discuss, at least not until they enter the international markets, so I wanted to highlight this Top Gear review on the NIO ES6. Well, it’s not technically a review of the ES6, its more a review of the NIO ‘Power Swap’ stations although, if there were any major issues with the vehicle, Tom Harrison the Top Gear reviewer, would’ve called them out.


If I were NIO, I’d be breathing a sigh of relief since most of the press they’ve received recently has been pretty negative and not much to do with the actual vehicle design, quality or reliability. I’d say that this was a fairly positive piece and importantly, a thumbs up for one of the main differentiators for NIO – the Power Swap stations, should you purchase a car from them.


The challenge with NIO is to continue getting more of these ‘Power Swap’ stations built all over China since these babies can’t be cheap! On top of that, as battery tech continues to improve range anxiety should become a thing of the past within the next 4-6 years rendering these stations virtually moot. Most ES6 & ES8’s are purchased in one of the Tier 1 cities (Beijing, Shanghai, Shenzhen, Guangzhou) so maybe expanding the Power Station footprint is not a major concern of theirs until they begin to penetrate the tier 2, 3 & 4 cities.


I would also be remiss if I highlighted this Top Gear article and not the video review (will need VPN if you’re behind the Great Firewall) of the NIO ES8 put together by the Technode team in Shanghai. They take a deeper dive into the driving dynamics of the vehicle and put some of the ES8’s tech through its paces, highlighting the issues with Nomi – the AI assistant & GPS that they dealt with on their road trip.

#NIO #TopGear #PowerSwapstation #ES6 #ES8 #Technode #carreview


China Evergrande making up for lost time. (www.markets.businessinsider.com)

China Evergrande, China’s leading real estate conglomerate is trying to make the MOTHER of all pivots. Earlier this year, their chairman Hui Ka Yan, announced the ambitious goal of creating the largest and best new energy automotive group in the world within the next 3-5 years. Two months ago, Evergrande launched a new automotive brand – Hengchi. This will be the brand they channel that ambition through, starting with the Hengchi 1 which is slated to be intro’d by CQ2’20.


You may remember Evergrande as the company that bailed out Faraday Future (FF) when no one else would and then backed out of that investment when FF’s founder Jia Yueting sued them. It seems they decided they’d much rather control their own destiny so they’ve been on a shopping & partnering spree with various EV suppliers and players in the market. In the last year alone, it’s been reported that they’ve spent over $3.6B acquiring assets that will allow them to design and build their own EV.


Their latest bold move happened on November 12th in Guangzhou when China Evergrande held the ‘NEV Global Strategic Summit’ and sitting at a table that looked about the length of a basketball court, the China Evergrande management team signed strategic partnerships with 60 global auto parts suppliers from the US, the EU and Japan. These partners will likely supply parts and systems for the Hengchi 1. Outside of their initial vehicle, there aren’t many other details regarding strategy, management or plans but what we do know is that they also carry a mountain of debt which could derail their EV ambitions.

Although the biggest player in the real estate market in China, they’re the New Kids on the Block when it comes to EVs. Will they underestimate the automotive sector like some of their earlier Chinese brethren, you better believe I’ll be keeping tabs on them to see where they go from here.

#ChinaEvergrande #Hengchi #globaldomination #kickingthedoordown #debtkings

LAST MILE MOBILITY

E-Scooter sharing 2.0. (www.ride.tech)

Since their launch a couple of years ago in cities like LA, SF, and Paris, e-scooter companies like Lime and Bird have deployed thousands of e-scooters and have given users millions of rides. The messiness, danger and overall confusion about how, where, when they can be used has left many local municipalities and their citizens frustrated about how to co-exist with the e-scooters being part of the broader, local transportation system.


This article identifies the 5 major things that will affect e-scooter services in the future which I’ve listed below.


- City restrictions

- Growing competition

- General safety concerns

- Smarter tech

- Community concerns


Totally agree with these buckets with a particular focus on growing competition and smarter tech since I believe and have stated as such in past newsletters that people will transition themselves over to electric bicycles and even mopeds as the technology and sharing services become more available in 2020.


I think e-scooters will have a VERY tough time carving out a piece of the first/last mile pie once these other services enter into the same cities and markets. I could see Lime, Bird or one of the other popular e-scooter companies partnering or acquiring a smaller e-bicycle startup and incorporating them into their platform in order to stay competitive.


Let’s check back in this time next year to see if my prediction was right!

#escooter #safetyissue #notenoughtogoaround #ebikesarecoming

Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation. Members of our team have experience working in Detroit, Silicon Valley as well as here in China across multiple sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA, and many others.

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